‘Powers for a purpose – strengthening devolution’ is the interim report of the Scottish Labour Devolution Commission. The Red Paper Collective welcomes this consultation paper as an important contribution to the constitutional debate and a signal that Scottish Labour understands the importance of making a positive case for greater devolution. Simply knocking the Yes campaign is not enough.
The Red Paper Collective believes the answer to the real problems facing people in Scotland are not to be found in a flag, a border or even a list of powers in Holyrood and Westminster; it is what you intend to do with these powers and for what purpose. The purpose should be to create a more equal society through a significant redistribution of wealth within Scotland and greater control over the economy through common ownership.
In this paper we set out some views that those responding to the Scottish Labour consultation might wish to consider.
As the Commission says in the report, Scottish Labour is the party of devolution, even if the road to that position has been, at times, a rocky one. That position should be one of principle and recognise the aspirations of the people of Scotland for greater devolution.
While maintaining the integrity of the UK is important, it is of limited value as a principle upon which to assess the merits of proposals to devolve additional powers. We believe that devolution of powers should be based on the principle of subsidiarity, the idea that matters should be handled by the smallest (or, the lowest) competent authority. This principle also applies to the Scottish Parliament in its dealings with local government because decisions should be taken as closely as possible to the citizen. Further powers should also be judged against how they promote the broader vision of a fairer Scotland set out above.
We also support mechanisms to ensure the legal entrenchment of devolution within the constitution. This may evolve into a more federal structure and we welcome initiatives from Wales for a UK constitutional convention to address these issues. Several areas that remain reserved should still be subject to dialogue between the UK and Scottish Parliament to ensure joined up working or that UK approaches are appropriate for Scotland. The fight for class justice must continue at UK level because we recognise where real economic power lies on these islands – even with constitutional change it isn’t here in Scotland.
Fiscal powers and taxation
The Commission’s interim report focuses on further powers over taxation and spending. At present revenue from devolved taxes in Scotland is one of the lowest in Europe at 13.8%, just over £4bn. After the Scotland Act 2012 is implemented that will rise to 30.8%, just over £9bn. This will put Scotland in the same league as Germany and Sweden, with one of the most devolved tax revenues in Europe. However, because a Scottish Government can’t vary the rate in each band, any increase in income tax is not as progressive a measure as it could be.
We have argued for the following package on fiscal powers:
· Devolve all property based taxes. They already largely will be after the Scotland Act 2012 is implemented.
· Fully devolve income tax including the power to vary the rate in bands as partial devolution makes little sense. This could include National Insurance as the link with contributory benefits is becoming increasingly weak and government needs to see the full impact of their taxation policy on people’s incomes.
· Business taxes should remain at UK level. Tax competition is wrong in principle and in any case may be constrained by tightening EU rules in this field.
· Consumption taxes (primarily VAT) largely at UK, in part because EU rules don’t allow variable rates in the same state. There is a stronger policy element to fuel duty, tobacco and alcohol taxes, but given the integrated nature of the UK it is hard to see how these could be set differently in Scotland.
Any partial devolution of fiscal powers will also require a balancing mechanism using a combination of grant and borrowing. We do not believe it is essential to match up tax income to spending at each level of government as proposed by Devo-Plus. This approach is based on their neo-liberal ‘moral hazard’ argument that parliaments should spend what they raise. It also inflexible and probably unworkable in practice. Our approach retains a balancing mechanism, like Barnett, because we recognise the value of UK fiscal solidarity. This means starting from a fixed position and if we increase or decrease tax yield by changing rates or other measures, then Scotland’s spending goes up and down accordingly.
Other countries, including the United States, have different income tax levels at state level but still have fiscal transfers. Greater fiscal autonomy is not simply to enable progressive taxation, but importantly to avoid Scotland being tied to the financial consequences of English public service approaches. We also see little value in assigning revenues as this is largely cosmetic.
Taxation is not the only fiscal power we should consider. The Scotland Act 2012 gives the Scottish Government new borrowing powers and there has been a recent Treasury consultation on bond issuance. However, again these are very limited, both in method and amount, with the Treasury orthodoxy insisting on central government’s right to control overall state finances. This is a crucial issue for Scotland and it is essential that Scotland gets wider borrowing
The only restriction should be prudential i.e. can Scotland finance the cost of borrowing from revenue. This power already exists for local government therefore it seems absurd that devolved administrations should not have similar powers. With such flexibility we could finally get rid of the huge cost of PPP/PFI schemes by giving prudential borrowing powers to health boards, NDPBs and public corporations, including Scottish Water.
In the context of enhancing the financial powers of the Scottish Parliament/Government in a devolved UK, we should not lose sight of the value of fiscal solidarity across the UK. It also happens in other European countries using mechanisms like shared taxation, hypothecated spending and equalisation mechanisms. Scotland has benefitted from this approach in the past, as with the Barnett formula, and may need to do so again. Greater fiscal autonomy must still allow for resource transfer to areas of need across the UK
The Commission’s interim report is somewhat light on non-fiscal powers. As set out above the key principle when allocating powers between levels of government should be subsidiarity, the idea that matters should be handled by the smallest (or, the lowest) competent authority. On that basis we have looked at the balance of powers and support the further devolution of the following powers:
· Welfare benefits. While we agree that welfare benefits should be generally reserved, consistent with fiscal solidarity, there are a few exceptions. Council Tax Benefit is being devolved and this is necessary for any reform of the Council Tax, which is a devolved matter. We also believe that Housing Benefit should be separated from the Universal Benefit because of the close link to housing policy, a devolved issue.
· Pensions. While the state pension should remain at UK level as above public service pensions for devolved services should be fully devolved. At present devolution is limited to regulatory powers only. Experience with the recent UK Public Service Pensions Act confirms our view that a one size fits all UK approach is not appropriate for this issue.
· Control of medicines and misuse of drugs. These are reserved whilst other health and criminal provisions are devolved. This appears to be inconsistent and we would favour these powers being devolved.
· Elections to Scottish Parliament and voting franchise. The current hybrid arrangements can cause confusion with authorities as well as the public. The Scottish Parliament should control all aspects of elections that they have responsibility for.
· Data protection. The Scottish Information Commissioner, appointed on the recommendation of the Scottish Parliament, deals with freedom of information issues in devolved public service areas. The Information Commissioner is a separate UK-wide authority appointed by Westminster and responsible for reserved areas of public service, including in Scotland, and also issues which relate only to England, Wales and Northern Ireland. The UK Information Commissioner is responsible for dealing with Data Protection issues across the UK. The two authorities currently co-operate on the basis of a Memorandum of Understanding but as Freedom of Information and Data Protection are closely linked we can see merit in devolving Data Protection.
· Immigration. As the ‘Fresh Talent’ initiative showed the immigration requirements of Scotland have been constrained by a UK immigration policy that is largely driven by the needs of SE England. Whilst UK borders remain, we would argue for consideration of some separate immigration controls including the use of Scottish residence requirements. This would enable Scotland’s economic requirements (already a devolved issue) to be given greater focus. In addition there is also a case for considering elements of asylum powers as the exercise in practice of these powers have not always reflected Scottish public opinion in recent years. Asylum also has significant implications for devolved responsibilities particularly social work and education.
· Competition policy. We believe competition policy in respect of provision of public services should be devolved. This is most obvious in water as this is a public service in Scotland. Public service, not competition policy should drive the regulatory approach.
· Consumer protection. This is largely enforced by local government in Scotland and UK government roles do not always reflect Scottish requirements. Devolution could make consumer protection more responsive to local conditions, and there are no strong reasons to keep this matter reserved.
· Energy. This is a shared area of responsibility at present. Generation and nuclear regulation are reserved. Planning, aspects of energy efficiency and renewable energy are devolved. This can lead to some confusion over roles. There is a UK market for energy and European Directives which would require some common approaches. However, Scotland’s energy industry is structured differently to the rest of the UK and we have concerns over discriminatory arrangements by UK regulators. Scottish energy policies have been different to the rest of the UK, reflecting Scotland’s strengths in this field. It also a key element of economic strategy which is devolved.
· Job centre employment programmes. We support the devolution of these powers as recommended by the Christie Commission to ensure a joined up approach to service delivery.
· Health & Safety. We believe that devolution of powers over health and safety could improve Scotland’s poor record in health and safety at work. Scotland has different industry structures that may explain in part the differences. In addition other aspects of health and safety including the NHS and local authority roles are already devolved and could be joined up more effectively if this service was devolved. This is already devolved in Northern Ireland.
· Broadcasting. As culture is largely devolved in seems an anachronism that the public service broadcaster should be regulated at UK level. The Brodcasting Commission partly supported this with their recommendation that the Scottish Parliament should take an active role in considering the broadcasting industry and services audiences in Scotland receive, in order to provide a visible and public forum for debate, with Scottish Ministers having greater responsibility, within the UK framework, for those operational functions directly affecting Scotland. They also recommended that the influence and responsibilities of Ofcom in Scotland should be strengthened and there should be specific representation for Scotland on the Ofcom Board at UK level.
· Equal opportunities. The substantive legislative provisions are reserved and the Scottish Parliament’s powers are currently largely restricted to promoting equality. We believe that Scotland’s demographics are different to England and that we have different equality concerns (e.g. sectarianism). Therefore these provisions should be devolved. There are precedents for this: Northern Ireland has had different equality legislation from the rest of the UK, and Scotland already has its own Human Rights Commission.
· Labour market regulation. There is widespread anger at the attacks on employment rights, equalities and trade union rights at Westminster. This approach is also leading to an economy where work is less well paid, less secure and less permanent. We recognise that labour market regulation and pay in particular are vital levers in addressing poverty and income inequality and free trade unions have a key role in ensuring better wage distribution. In addition, Tribunal fees are limiting access to justice and if these powers were devolved we could adopt a different approach as in Northern Ireland.
· Transport. Most transport powers are devolved, but there remains some uncertainty over railways that need to be resolved so that the Scotrail franchise in particular can be brought back into common ownership.
· Industrial policy. This is already devolved but all too often it has been invisible with laissez- faire economics prevailing. It is time to change this with a democratically run Scottish Investment Bank, a properly resourced and statutory Co-operative Development Scotland with powers to convert enterprises like those found on continental Europe and an active interventionist industrial policy under public control guided by sustainable development criteria with resources for trade unions as well as employers. Local authorities also have a role providing information and technical advice to workers and communities who are considering co-operatives as an alternative to closure and redundancy. A key aim of this must be to rebuild Scotland’s manufacturing base and to re-regionalise ownership and in so doing reverse the trend which has left just 18 per cent of all enterprises employing more than 250 workers in Scotland in Scottish ownership by 2012.
Devolution below the Scottish Parliament
The Commission’s report rightly highlights creeping centralization and the importance of reinvigorating local democracy and empowering local people. We therefore agree that further reforms to devolution should be aimed at strengthening other layers of decision making and improving democratic accountability at all levels. Devolution should not end at Holyrood.
We emphasise this relates to devolving powers to democratically accountable local authorities, not simply localism. Councils should work in partnership with local organisations, but accountability is through the ballot box and that is not achieved by handing public services over to unelected people. Services should be designed from the bottom up engaging staff and users rather than top down manageralism. We agree with the Commission that this devolution should include the Crown Estates.
Local authorities should have a stronger statutory footing – gaining greater control over their finances including business rates and there should be less ring fencing of council grants as with the Council Tax freeze, police numbers etc. As the Christie Commission recognised, Scotland has the smallest number of local authorities per head of population in Europe. We should be considering strengthening local democracy, not taking it further away from the people through mergers and centralisation.
The Red Paper Collective seeks to make the debate on the constitution more than an examination of mechanisms. However, we recognise the importance of getting the balance of powers right and that should be done with some guiding principles such as subsidiarity.
In this paper we have outlined how extended devolution could be delivered with greater control over fiscal and other powers. In some cases this would give the Scottish Parliament the levers to address specifically Scottish issues. In other cases simply because it we would do things differently in Scotland without undermining the solidarity of the UK. One of the strengths of devolution is that other parts of the UK can learn from the success and failures of different approaches.
In this debate we should always remember that if we seek greater devolved powers or any other change – we do so for the purpose of improving people’s lives. The constitutional mechanics are a means to an end. Not an end in themselves.
We strongly believe that Scottish Labour has to articulate a radical vision in the referendum debate and beyond of a better Scotland that tackles poverty and inequality. Forthcoming Red Paper publications will set out a range of ideas across the policy spectrum for achieving this goal. Such a positive vision will require further devolution of powers as we set out above – powers for a purpose.